Fitch Ratings today affirmed ratings of eight lenders including State Bank of India and Bank of Baroda at ‘BBB-‘, with a stable outlook. Bank of Baroda (New Zealand), Punjab National Bank, Canara Bank, Bank of India, ICICI Bank and Axis Bank’s rating has been also affirmed at ‘BBB-‘. The rating agency, however, downgraded viability rating (VR) of Bank of India to ‘b+’ from ‘bb-‘. “Our expectation is that they (banks) are highly likely to receive extraordinary support from the government due to their high systemic importance and the government’s majority ownership in all except ICICI Bank,” the rating agency said in a report here today.
The stable outlook on SBI, BoB, PNB, Canara, BoI and ICICI mirrors the outlook on the country’s rating which is BBB-/Stable. BoI’s viability rating has been downgraded, reflecting its weaker intrinsic risk profile compared with higher-rated peers. “The bank’s core capital buffer has dropped significantly due to persistent losses and it appears vulnerable to moderate shocks,” the report said.
Overall, the rating agency is maintaining a negative sector outlook on the country’s banks.
“This is based on our assessment that the sector’s core capitalization, which has been eroded in the last few years, will remain challenged unless it is boosted by adequate capital support from the authorities or equity raising from capital markets,” it said. Internal capital generation is expected to remain weak due to the banks’ subdued growth outlook while there could be significant pressure stemming from continued provisioning due to ageing of outstanding non-performing loans (NPLs) and the potential resolution of some large NPLs, the rating agency said. It said resolving both the asset quality and capital questions are important conditions for reviving the financial health of the sector.